Use the Cobb-Douglas production function to show that a one-unit increase in the labor input will reduce the marginal product of labor and increase the marginal product of capital. Explain each of these results
What will be an ideal response?
MPL = = = . This ratio will decline when L rises. MPK = = = . This ratio increases with L. Adding more labor input causes the capital input to be spread more thinly (each unit of labor has less capital to work with), so output increases at a diminishing rate. More labor input means, also, that the available capital is being used more intensively (each unit of capital has more labor to work it), so the change in output that would result from a change in the quantity of capital is becoming larger.
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In monopolistic competition, excess capacity results from
A) the presence of a large number of buyers. B) the mobility of firms into and out of the industry. C) imperfect information about price. D) product differentiation.
Refer to Table 2-11. If the two countries specialize and trade, who should export wheat?
A) South Korea B) There is no basis for trade between the two countries. C) China D) They should both be exporting wheat.
An autonomous increase in net exports for any given inflation rate ________
A) would add directly to planned expenditures B) would raise the equilibrium level of output C) causes the aggregate demand curve to shift to the right D) all of the above E) none of the above
Because a monopoly will produce less of a good than a competitive market will, welfare is always greater under monopoly than under competition in the presence of a negative externality
Indicate whether the statement is true or false